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Intel’s Prolonged Supply Shortage Good News for AMD

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Oct. 22 2019, Published 6:30 p.m. ET

Advanced Micro Devices (AMD) stock rose 12.8% between October 10 and 21 as concerns around the US-China trade war ease. Also, the stock benefitted from analyst upgrades. However, the biggest factor that contributed to AMD’s rally was Intel’s (INTC) CPU (central processing unit) supply shortage. Intel’s supply shortage started in September 2018. Additionally, Intel confirmed that it is facing a CPU supply shortage. The impact of the shortage was visible at the Canalys Channels Forum on October 18.

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According to The Register, several PC makers talked about Intel’s supply shortage at the Canalys Channels Forum in Barcelona. HP’s (HPQ) Personal Systems Business president Alex Cho said that Intel’s supply shortage wasn’t limited to specific CPUs. Also, the shortage has hit HP’s product portfolio. On AMD, he said, “They’ve made good progress on the performance of their products, it is a viable alternative for our customers.”

Limited CPU supply hurts global PC shipment growth

Lenovo Group Limited’s (LNVGY) COO Gianfranco Lanci said chip supply shortage is limiting PC sales, according to The Register. He said that global PC market shipments could have grown 7% to 8% in the third quarter if not for the CPU supply shortage. According to Canalys, global PC shipments rose 4.7% YoY (year-over-year) in the third quarter.

Canalys said that the world’s largest PC vendors Lenovo and HP had an advantage over smaller vendors as Intel gave priority to them. Hence, the two reported their best third-quarter performance so far. Their PC shipments rose 7.2% and 8.5% YoY in the third quarter. Probably, that is one of the reasons why Microsoft introduced the AMD Ryzen powered Surface laptop.

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PC demand on the rise

Responding to The Register, an Intel spokesperson said that in the last one year, the company invested $1 billion capital to grow 14m capacity by 25%. Also, it’s ramping 10nm production and plans to add more capacity next year.

Looking at Intel’s response, even the increased capacity fell short of PC demand. There is no doubt that PC demand has grown, especially among enterprises. As Microsoft is ending support for Windows 7 from next year, businesses are shifting to Windows 10 systems.

In early 2018, Google researchers discovered hardware security flaws like Meltdown and Spectre in Intel’s x86 chips. Intel released software fixes but that slowed down the CPU’s performance. The Register, citing supply chain sources, said that organizations are replacing their current Intel chips with the new ones free from security issues. Even this is driving PC demand.

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Speculations around Intel’s supply shortage

A pro-longed CPU supply shortage and lack of clarity from Intel have fuelled speculations. At the Canalys Channels Forum, Lenovo’s Lanci speculated two possibilities for the shortage. He said if Intel is facing production issues as it claims, one year is enough time to address the issue. However, if the issue is with the CPU architecture, then the time of resolution is “unpredictable.” However, this is just a speculation and it should be taken with a grain of salt.

Some supply chain sources said that Intel’s CPU supply shortage comes as it is upgrading some of its facilities to 10nm and 7nm nodes. Intel is accelerating its technology transition to catch up with TSMC on technology. Also, at the 2019 Investor Meeting, Intel CEO Bob Swan said that the company plans to boost 10nm production in 2020 and transition to 7nm in 2021.

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Intel’s supply shortage good news for AMD

AMD and Intel are the only two major x86 processor suppliers in the world. Intel owns over 80% share in the PC processor. Also, the company owns over 95% share in the server processor market. Intel first faced a supply shortage back in mid-2018 when PC demand rose suddenly. However, the chipmaker was transitioning from 14nm (nanometer) process node to the 10nm node. The supply shortage intensified in the fourth quarter. Intel prioritized the production of higher-end server CPUs and high-end new-generation PC CPUs.

Intel’s supply shortage helped AMD gain share in the x86 CPU market. According to Mercury Research data for the fourth quarter of 2018, AMD’s desktop CPU share rose to 15.8% from 13% in the previous quarter. Also, its notebook CPU share rose to 12.1% from 10.9% and server CPU share to 3.2% from 1.6%.

Analysts expect that AMD will gain a lot of market share from Intel in 2019 and 2020. According to The Street, Morgan Stanley analyst Joseph Moore believes that AMD will gain share in all its end-markets of PCs, servers, semi-custom, and graphics next year. DigiTimes, citing market observers, believes that AMD might achieve more than 10% share in the server CPU market next year.

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